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Financial Advisor

A finance professional who provides consulting and advice about an individual’s or entity’s finances

What is a Financial Advisor?

A Financial Advisor is a finance professional who provides consulting and advice about an individual’s or entity’s finances. Financial advisors can help individuals and companies reach their financial goals sooner by providing their clients with strategies and ways to create more wealth, reduce costs, or eliminate debts.

 

Financial Advisor

 

Financial Advisor Role

A financial advisor can help individuals or companies meet their objectives.

 

Individuals

In the case of an individual, a financial advisor can provide insight into how he/she can save more and build their wealth. It is often done by constructing a portfolio of investments that are well suited to the client’s risk attitude. Some clients are more willing to take on risk since the prospect of potential greater reward is more compelling to them than the prospect of potentially losing money.

Conversely, there will also be clients who are more risk-averse, and that would like a lower-risk portfolio, even if it means potentially lower returns.

Determining an individual’s risk attitude is very difficult since an individual’s risk attitude depends on a great number of factors. Thus, a financial advisor may ask about things like the individual’s age, income, marital status, indebtedness, or savings in order to gather an understanding of what type of investment portfolio would correspond best to a specific type of individual.

 

Companies

In the case of other entities such as companies, financial advisors can help provide a second neutral perspective on corporate development projects. For instance, if a company is considering expanding its operations by building a new factory, financial advisors can help assess the profitability of the project independently.

Once the advisors’ assessment is concluded, they can present their findings to the company’s management with the goal that their analysis will provide the company’s leadership with a valuable second opinion.

 

Financial Advisor Salaries

In Canada, compensation ranges are very wide for financial advisors, with base salaries starting at low at $30,000 and going up to over $100,000.

Most financial advisors are also compensated with bonuses, which are lump sums that are paid out if certain performance objectives are reached. Some advisors are also compensated on a commission basis if they invest their client’s money in certain specific managed funds. As with many other finance-related professions, relevant experience is rewarded. It means that managers who have been practicing for many years are often the ones who end up at the higher end of the income spectrum.

Obtaining designations such as the CFA charter or an MBA can also help expedite an individual’s progress up the career ladder. Many financial firms also require a certain minimum GPA cut-off for new graduates, meaning that excellent grades are a must.

 

Financial Advising to Companies

 

The Future of Financial Advising

As technology continues to progress, there’s been an increasing number of “robo-advisors” that are being used by companies. Robo-advisors are automated programs that interpret user information using advanced algorithms and create investment portfolios geared towards the clients’ specific financial goals.

Such programs automate the process of collecting and interpreting information, meaning that they can complete the job of a financial advisor in a fraction of the time and at a fraction of the cost. Robo-advisors can constitute a real threat to financial advisors if technology continues to progress and algorithms become increasingly accurate.

Nonetheless, there is a great deal of concern over how trustworthy robo-advisors can be. Many individuals would still like to know that their money is being managed by a real person that they can talk to and communicate with rather than by a computer. However, in a world where financial advisors and investment managers seldom beat market indices, it is becoming less of a concern.

 

Additional Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Demographics
  • Personal Banker Job Description
  • Personal Finance
  • Return on Investment

FMVA certification program

Advance your career in investment banking, private equity, FP&A, treasury, corporate development and other areas of corporate finance.

Get certified as a financial analyst with CFI’s FMVA™ Program.